Lending to Blacks, Hispanics plummets during housing crisis

From [HERE] Since the housing market collapsed, mortgage lending to African Americans and Hispanics has plunged precipitously — by more than 60 percent, according to a new study of loan information that banks submit to the federal government.

Together, African Americans and Hispanics were able to borrow 62 percent less to buy or refinance homes in 2009 than in 2004, before the market crashed, the computerized analysis finds. With lenders imposing tighter credit standards, mortgage dollars going to non-Hispanic white borrowers also declined, though by considerably less: 17 percent. Asians fared best, obtaining nearly an equal amount in mort­gages.

The study, using Federal Reserve data, was conducted by Maurice Jourdain-Earl, founder and managing director of ComplianceTech in Arlington, Va., which advises financial institutions on fair lending practices.

Mortgages made to Hispanics have decreased the most, by 63 percent, to $78 million in 2009 from $214 million in 2004. Lending to African Americans has dropped to $49 million from $122 million, or 60 percent.

Whites have been affected much less and Asians barely. New mortgages to white borrowers declined to $1.1 billion from $1.3 billion, or 17 percent. Lending to Asians stayed almost the same.

Whites were about twice as likely as African Americans and Hispanics to be approved for prime mortgages with the lowest interest rates, while members of the two largest minority groups were two to four times more likely to receive subprime loans, which have higher rates. By contrast, the disparities were much narrower for loans insured by the government’s Federal Housing Administration, which has attracted a growing number of borrowers during the credit crunch.

The study concluded that a “dual mortgage market” has emerged, with white and Asian borrowers having better access to lower-cost mortgages than African Americans and Hispanics, who on average pay more to own or refinance a home — if they can obtain a mortgage.

“The higher cost for mortgage credit translates into less money for basic necessities,” Jourdain-Earl writes.

Reasons for the lending disparities are not directly reflected in the national data, and the Federal Reserve Bank does not collect information on foreclosures by race and ethnicity.

Jourdain-Earl raises the possibility of an unknown degree of discrimination, noting an “erroneous notion” that minorities caused the housing market’s collapse, despite the relatively low amount in mortgages they received, compared with those for white borrowers.

Some critics have blamed the housing crisis on the Community Reinvestment Act, which encourages banks to make loans in the low- and moderate-income areas where they operate. Jourdain-Earl said that based on Federal Reserve data and CRA’s compliance rules, the volume of borrowing by minorities was too low to cause the housing crisis.

The Mortgage Bankers Association declined to comment on the report because, spokeswoman Melissa Key said, “The author does not control for any of the factors that could lead to rate or approval differences across borrowers.”

Chris Herbert, research director of the Joint Center for Housing Studies at Harvard University, says the report has limitations in explaining why minorities fare less well in the housing market, a trend he acknowledges.

In response, Jourdain-Earl said, “I wasn’t trying to ascertain the why but to shine a bright light on the outcome and the effects on wealth and home-ownership rates.”

A report released last week by Chicago-based National People’s Action showed parallel results in Chicago and the Midwest but with even sharper declines in refinance loans. The NPA report also found that looking at all income levels in the metropolitan areas, white homeowners saw an overall increase in prime-rate refinance loans of 46 percent in 2009, while black and Latino homeowners saw decreases of 67 percent and 61 percent respectively.